Does the provided text specify any particular obligations related to the Del Taco Development Incentive Program Addendum?
Del_Taco Franchise · 2025 FDDAnswer from 2025 FDD Document
Development Incentive Program. For so long as Developer and its affiliates are fully compliant with the terms of the Development Agreement, Franchise Agreement, and any other agreements entered into with Del Taco and its affiliates, the following provision shall apply to each Franchise Agreement executed pursuant to the Development Agreement:
The Royalty Fee (which is currently 5% of Net Sales) will be reduced to: (i) 1% of Net Sales for the first year of a Restaurant's operations; (ii) 2% of Net Sales for the second year of a Restaurant's operations; (iii) 3% of Net Sales for the third year of a Restaurant's operations; (iv) 4% of Net Sales for the fourth year of a Restaurant's operations; and (v) 5% of Net Sales for all subsequent years.
Adherence to Development Schedule. The Developer must develop each Restaurant according to the development schedule of the Development Agreement to qualify for the development incentives described in this Addendum. In the event the Developer breaches the Development Agreement or Franchise Agreement, in addition to the other rights and remedies available to Del Taco under the Development Agreement and Franchise Agreement, Developer shall immediately pay to Del Taco the amount of any reduction in the Initial Franchise Fees or Royalty Fees.
Transferability. The Developer shall not have any rights to transfer this Addendum or the rights granted to the Developer by it.
No Other Modifications. Except as specifically set forth in this Addendum, the terms of the Development Agreement shall remain unchanged and in full force and effect.
Source: Item 23 — RECEIPTS (FDD pages 59–325)
What This Means (2025 FDD)
According to Del Taco's 2025 Franchise Disclosure Document, the Development Incentive Program Addendum outlines specific obligations for both the developer and the franchisee to qualify for royalty fee reductions. For developers building three or more Del Taco restaurants in emerging markets, compliance with the Development Agreement, Franchise Agreement, and other agreements with Del Taco is essential. A key obligation is adhering to the development schedule outlined in the Development Agreement. Failure to meet this schedule or any breach of the agreements results in the developer immediately owing Del Taco the amount of any reduction in Initial Franchise Fees or Royalty Fees. The addendum also explicitly states that it is non-transferable, meaning the developer cannot transfer the addendum or its associated rights to another party.
For franchisees developing at least five Del Taco restaurants, similar obligations apply to the first two restaurants opened under the Development Agreement. Compliance with all agreements is necessary to receive the reduced royalty fees. Like the developer agreement, adherence to the development schedule is critical for maintaining the development incentives. A breach of the Development Agreement or Franchise Agreement triggers an immediate repayment obligation to Del Taco for any reductions in Initial Franchise Fees or Royalty Fees. The franchisee also cannot transfer the addendum or its rights.
Both versions of the Development Incentive Program Addendum emphasize strict adherence to the development schedule and overall compliance with all agreements with Del Taco. This ensures that developers and franchisees remain committed to the brand's expansion plans and operational standards. The financial implications of non-compliance, specifically the immediate repayment of fee reductions, serve as a strong deterrent against breaches and a motivator for meeting development targets. Prospective franchisees should carefully review the Development Agreement and Franchise Agreement to fully understand their obligations and the potential financial consequences of failing to meet them.